Monitor Project Performance Using Earned Value Management
Earned Value Management (or EVM) is a technique widely used for measuring project performance against the project baseline, in most cases the original budget.
The earned value calculations is a top priority for studing among all project managers that want to get a Project Management Professional (or PMP) certification. For sure EVM is one critical practice area for monitoring the performance of a project from both a cost and schedule perspective.
It’s common to think about projects with binary thinking:
- Ahead of schedule vs. behind schedule
- Over budget vs. under budget
Both project performance factors have a direct impact on the total project cost. What will be the total cost of my project if I’m ahead of schedule but my costs are higher than expected? If I’m behind schedule but my costs are lower? EVM provides great information to help with these questions.
Calculating Earned Value
The procedure of Earned Value calculations require the following:
- Planned Value (PV): this is the budgeted amount for the current reporting period.
- Actual Costs (AC): these are all recorded actual costs to date.
- Earned Value (EV): this is the total project budget multiplied by the percentage (%) performance of project completion.
When having these numbers available, then it is all set for some calculations.
- Schedule Performance Index (SPI): is the calculation of SPI = EV/PV.
SPI measures progress achieved against progress planned.
If SPI value <1.0 indicates less work was completed than was planned.
If SPI >1.0 indicates more work was completed than was planned.
- Cost Performance Index (CPI): is the calculation of CPI = EV/AC.
CPI measures the value of work completed against the actual cost.
If CPI value <1.0 indicates costs were higher than budgeted.
If CPI >1.0 indicates costs were less than budgeted.
Bot SPI and CPI, when they are >1 it is good, and when they are <1 it is bad.
- Estimated at Completion (EAC): is the calculation of EAC = (Total Project Budget)/CPI
EAC is a forecast of how much the total project will cost.
An Example of Earned Value Management
We are to look at an example where being halfway through a year-long project that has a total budget of €1,000,000. The budgeted amount through this six-month mark is €550,000. Summary of actual costs through this six-month mark is €450,000.
So, in summary:
- Planned Value (PV) = €550,000
- Actual Cost (AC) = €450,000
- Earned Value (EV) = (€1,000,000 * 0.5) = €500,000
- Schedule Variance (SV) = EV–PV = €500,000-€550,000 = -€50,000 (it is bad because <0)
- Schedule Performance Index (SPI) = EV/PV = €500,000/€550,000 = 0.91 (it is bad because <1)
- Cost Variance (CV) = EV–AC = €500,000-€450,000 = €50,000 (it is good because >0)
- Cost Performance Index (CPI) = EV/AC = €500,000/€450,000 = 1.11 (it is good because >1)
- Estimated at Completion (EAC) = (Total Project Budget)/CPI = €1,000,000/1.11 = €900,000
Having SV negative and SPI <1, shows that the project is considered behind schedule. While the project is at 50% of the way through but have planned for 55% of the costs to be used. Steps are necessary for the project performance to catch-up in the second half of the project.
Having CV positive and CPI is >1, shows that the project is considered to be under budget. While the project is at 50% of the way through, but actual costs so far are only 45% of project’s budget. By keeping the project to perform at this pace, then the total cost of the project (EAC) will be only €900,000, as opposed to our original budget of €1,000,000.
Pitfalls to watch out for
- Εarned value is an excellent early-warning system, and looking at earned value trends can provide to project management very useful data. It is a common practice to report earned value monthly, but in shorter projects could be more frequent.
- Earned value is very helpful for measuring project performance relative to schedule and budget but in any case it doesn’t guarantee project success.
- It is very important that all actual costs are included in calculations otherwise something could be overlooked (this can happen on indirect labor and non-labor costs).
- When reporting earned value calculations, keep in mind that the recipients have to know what the numbers mean and how and why they are used. It is recommended to present them in non-project management terms to sponsor of the project or other key stakeholders. This practice is much more easier than training stakeholders on “project management speak and terms”.
Earned Value Management with Rabio
For sure earned value calculations can help project management on a project to identify problems early and be proactive and reactive. EV metrics have to be defined in a standard manner, and the data must be available for reporting across the project portfolio.
If you’ve never calculated earned value on your project or if it’s been a while, try it out. You might be surprised by what you find. Rabio will help you to keep track of Budget, Actual Costs and Earned Value.
Keep track of your Earned Value with Rabio
Rabio is open-source software that was designed to manage and control budgets, their costs, and produce reports based on a flexible cost breakdown structure. It is budgeting software that can keep track of Earned Value and it is distributed for free.
You can easily use it for your personal needs or your business. Using Rabio ‘s managers system you can design and control your budget and compare it with costs and earned value at any time using the easy reporting internal system.
Furthermore, you can alter your budget or create forecast and projection managers and compare new data with the original budget.
The reports below are part of Rabio reporting system
Rabio is open-source
You can download Rabio open-source version here